About 2.5 million people missing out on Obamacare tax credits

About 2.5 million people are missing out on tax credits to lower the cost of their insurance, because they are buying health insurance plans off the federal and state health care exchanges, federal regulators said Tuesday.

Those earning between 100 and 400% of the federal poverty level —  up to $100,000 for a family of four — are eligible for tax credits that lower the cost of their insurance premiums. People who make less than 100% of the poverty level were supposed to be eligible for Medicaid under Obamacare, but nearly 20 states have opted against expanding the program.

The Department of Health and Human Services' new data highlight a key group the Obama administration needs to attract to sustain the key component of its signature law — the marketplace for those not covered by employer or government insurance plans. Large insurers, including Aetna, Cigna and United Healthcare, have dropped out of the exchanges in many areas, citing the high costs of covering the sicker-than-expected people who have enrolled so far.

HHS cited a recent Commonwealth Fund survey that found only 52% of uninsured adults knew they could get financial assistance for plans sold on the exchanges. Those who don't buy insurance have to pay a penalty at tax time that many say needs to be higher to boost enrollment, although the penalty is increasing as it is phased in.

"We have an uninformed public and the government chooses to use social media to encourage the young people, when the truth is the penalty is not high enough to encourage them," says Ronnell Nolan, CEO of the trade group Health Agents for America.

Some consumers may actually be more informed, however.

Every state has some health plans that are only available for sale off the exchanges, although most of the plans that are sold on exchanges are also available through insurance agents, navigators or direct from insurers. But a small subset of plans are only sold on exchanges, says Katherine Hempstead, who directs the health coverage team at the Robert Wood Johnson Foundation.

In many areas, one benefit of plans sold off the exchanges is that they are more likely to have some benefits when patients use doctors and hospitals that are not in the insurer's network, says Hempstead. And, she says, they may also have broader provider networks.

"For some consumers, these features may be worth forgoing the tax credit, and since they are ACA compliant they provide the same coverage," she says.

In Illinois, where broker Jordan Wishner runs the Health Insurance Shoppe, he says the same plans are sold on and off Healthcare.gov except for an Aetna plan that didn't prove popular.

In six states — California, Texas, Florida, North Carolina, Illinois, and Pennsylvania — HHS said more than 100,000 individuals enrolled in off-exchange individual market coverage have incomes that make them eligible for tax credits.

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HHS Secretary Sylvia Burwell reiterated that those who qualify for financial assistance usually have the option to buy coverage with a premium of less than $75 per month.

The new HHS analysis estimates about 6.9 million individuals now buy health insurance outside of the exchanges. Of those, about 1.9 million have incomes that would qualify them for Medicaid if their state expanded the coverage. Others can't buy plans because of their immigration status. The rest could enroll and would qualify for tax credits.

HHS also noted that tax credits protect consumers from rate increases, which are a big concern this year. Most people would be protected from increases because the tax credits would increase as well.

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Another problem Wishner has seen is that families may qualify for assistance, but that may be only that their children are eligible for the form of Medicaid known as the Children's Health Insurance Program (CHIP). Once it is only the two parents signing up for insurance, the family is no longer eligible for tax credits. Sometimes, he says, one the parents realize the children's physicians don't accept Medicaid, they move the whole family to a plan sold only off the exchange.

When there's a question as to eligibility for tax credits, Wishner says, he will often recommend families just buy off the exchange as dealing with Healthcare.gov "is a headache."