Why Does My Health Insurance Premium Increase with a Tax Credit?
If you are using the Health Insurance Marketplace, you may have noticed something unexpected. The premium for a health insurance plan can be higher when you apply a tax credit than when you don’t. While this may seem counterintuitive, there are a few reasons why this can happen.
How Tax Credits Work
Tax credits are subsidies provided by the government to help people afford health insurance. The amount of tax credit you are eligible for is based on your income and family size.
Why Premiums Can Increase with Tax Credits
There are a few reasons why your premium may increase when you apply a tax credit.
– Risk Adjustment: Insurance companies use risk adjustment to adjust premiums based on the health of the enrollees. When you apply a tax credit, you are essentially increasing the amount of money the insurance company receives from the government. This can lead to an increase in premiums, as the insurance company may view you as a higher risk and compensate for the additional funds.
– Silver Loading: Silver plans are the most popular type of plan on the Marketplace. As a result, insurers may charge higher premiums for silver plans to cover the costs of providing coverage to people who are eligible for tax credits.
– Plan Design: Insurance companies may design plans with lower premiums and higher deductibles to make them more attractive to people who are eligible for tax credits.
What to Do
While it is possible that your premium may increase when you apply a tax credit, it is important to compare the total cost of the plan, including the premium and the tax credit, before making a decision. In many cases, the tax credit will still make the plan more affordable than if you were to purchase it without a tax credit.
If you are not sure whether or not a tax credit will increase your premium, you can contact an insurance agent or broker for help. They can help you calculate the total cost of the plan and determine if you are eligible for a tax credit.
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