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FAQ

Frequently Asked Questions

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Premiums

What is a premium?

A premium is a monthly amount charged by an insurance carrier for coverage.

How do premiums vary by age and health status?

Before the health law goes into effect in 2014, people buying coverage on their own generally face medical underwriting, meaning that they can be turned down for coverage or charged a higher premium based on their health status. Under the reform law, insurers are prohibited from denying coverage or charging higher premiums based on health status. Beginning in 2014, the reform law also limits the degree to which premiums may vary by age, with the premium for a 64-year-old being no more than three times that of a 21-year-old. This means that premiums for older people may be lower. This also means that it is possible for the premiums for younger people may be higher.

How do premiums vary by location?

Premiums will vary by geographic area, reflecting the fact that the cost of living and health care expenses vary significantly based on the state of residence. Premiums also vary by location within each state. Therefore, actual premiums may be higher or lower, depending on where you live.

What constitutes “tobacco use”?

The final rule defines “tobacco use” as use of tobacco an average of four or more times per week within no longer than the past six months, including all tobacco products but excluding religious and ceremonial uses of tobacco. Tobacco use will be based on when a tobacco product was last used.

Issuers may vary rates for tobacco only based on individuals who may legally use tobacco under federal and state law (i.e., no tobacco rating for individuals under age 18). If an enrollee provides false or incorrect information about their tobacco use, an issuer may retroactively apply the appropriate tobacco use rating factor to the enrollee’s premium, but may not rescind the coverage.

Under the law people who use tobacco will pay a surcharge up to 50% more in premiums than people who do not use tobacco. Furthermore, the law specifies that exchange subsidies cannot be used to cover the portion of the premium that is due to a tobacco surcharge.

What is actuarial value and how does it affect premiums?

The actuarial value of a health insurance policy is the percentage of the total covered expenses that the plan covers, on average for a typical population. For example, a plan with a 70% actuarial value means that consumers would on average pay 30% of the cost of health care expenses through features like deductibles and coinsurance. The amount that each enrollee pays will vary substantially by the amount of services they use. The health reform law specifies a benchmark level of coverage for the purposes of premium subsidies using actuarial values. Premium subsidies will be tied to Silver plans, which have an actuarial value of 70%. Additional subsidies for people making between 100 and 250% of the poverty level limit cost sharing and raise the actuarial value of Silver plans. Regardless of the level of actuarial value, insurers will have to cover a defined set of health care services and cap the total amount of cost sharing required of consumers at defined levels, but can generally otherwise vary the structure and degree of cost sharing so long as minimum actuarial value thresholds are met.

Can premiums be compared to what people are paying today?

The premiums and tax credits presented in cost estimators apply to people who are buying insurance through the exchange. The premium calculations are consistent with estimates of premiums under reform prepared by the Congressional Budget Office.