Why a Gold Obamacare Plan May Be Cheaper Than a Silver One

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If you're shopping for a health insurance policy on the Obamacare exchanges during open enrollment, you'll need to look carefully at your plan options. You may be surprised to find a plan classified as a gold plan is cheaper than a silver plan offering less coverage.

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Why would gold cost less than silver? You're about to find out. 

Silver plans vs. gold plans

Plans sold on the Obamacare exchanges are categorized into different tiers depending on how much healthcare spending you pay for out of pocket. Bronze plans have the cheapest premiums but the most limited coverage. Platinum plans provide the most coverage but have costly premiums, so you pay more up front but have low deductibles, low coinsurance costs, and limits on your out-of-pocket spending.

Silver and gold plans fall between those two extremes. Silver plans are expected to cover around 70% of healthcare costs. Gold plans, with higher premiums, cover 80%.

But there's now a quirk, thanks to a decision from President Trump, that could mean gold plans with better coverage are cheaper. 

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Silver plans could be costlier than gold

The decision shaking up the insurance market relates to cost sharing reduction (CSR) subsidies. CSRs were built into Obamacare to ensure lower-income policyholders could afford to use their insurance. Insurers subsidize deductibles and other out-of-pocket costs, and they're repaid by the federal government through CSR subsidies. 

However, Congress hasn't appropriated money to pay CSRs since 2014. Until recently, CSRs were being paid anyway, but in October 2017, Trump announced payments would stop. Insurers are still obligated to cover policyholder costs, so they'll need to raise the money.

The most likely way they'll do that is by raising premiums on insurance policies classified as silver plans. This will raise premiums on silver plans by an estimated 19% in states using Healthcare.gov, 15% in Medicaid expansion states, and 21% in states that didn't expand Medicaid, according to the Kaiser Family Foundation. 

In most states, insurers have either already increased silver plan rates or are expected to soon. The result of silver plan premium increases: In around one-sixth of counties using Healthcare.gov marketplaces, gold plans now cost less than silver coverage.  

Why are silver plans bearing the brunt of increased premiums? 

In addition to CSRs, Obamacare is also set up to provide Advanced Premium Tax Credits, which are subsidies for insurance premiums. Tax credits are calculated so you pay a capped percentage of your income for a benchmark policy. The second-cheapest silver plan in each area is the benchmark plan used to calculate tax credits.

If your income is $1,500 monthly, and premiums for the benchmark silver plan are $500, then your premium would be capped at around 4% of your income, so you'd pay around $60 monthly and get a tax credit of $440 monthly. You could use this $440 credit to buy your benchmark plan or to buy a more expensive plan if you pay the difference. If a gold plan is $575, you'd pay $135 for the gold plan -- that's the $60 you'd have paid for your benchmark plan plus the extra $75 for the upgrade to gold.

When insurers raise the price of the benchmark silver plan, your subsidies go up. If the benchmark plan premiums are $600 monthly, your contribution is still capped at $60, but now you're getting a premium tax credit of $540. If you apply the $540 to a $575 gold plan, you pay $35 monthly for gold -- less than the silver cost.

Insurance buyers not receiving subsidies are obviously better off purchasing a gold plan with better coverage for $575 than a skimpier silver plan for $600. Of course, unsubsidized buyers no longer have the option to buy that cheaper $500 silver plan, as it no longer exists -- which could force healthier unsubsidized buyers who don't use much care to pay more overall since they're forced into policies with higher premiums. 

What plan should you buy?

Whenever you shop for insurance, you'll need to consider a variety of factors, including the premiums, deductible, and coinsurance costs. Now you have the added wrinkle of plans with more coverage coming with a lower premium. Be sure to shop carefully and check out the gold plans to see if they're your best bet.

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