California flag Two newinitiatives are credited for the historically low increase:state-funded tax credits for middle-class enrollees, and a new taxpenalty on the uninsured. (Photo: Shutterstock)

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Premiums on California's health insurance exchange will rise byan average of 0.8 percent next year, the lowest increasein the agency's history, state officials announced Tuesday.

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Covered California Executive Director Peter Lee credited two newstatewide initiatives for keeping the proposed rate hikes low: Nextyear, California will be the first state in the country to offerstate-funded tax credits to middle-classenrollees, which will be paid for in part by a new tax penalty onCalifornians who don't have health insurance.

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“It shows what happens when a state says, 'Protect theAffordable Care Act and build on it to make the system work for allCalifornians,'” Lee said.

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Related: California's AG: The face of the fight against theTrump administration

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Covered California estimates that the state-based tax credits,in conjunction with the new state tax penalty, will result in229,000 newly insured Californians.

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The average rate hike for 2020 is far lower than this year'saverage increase of nearly 9 percent  — and the five-year average increaseof 8.4 percent. Covered California began offering healthplans in 2014 to individuals and families who purchase their owninsurance as part of the state's implementation of the AffordableCare Act.

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Most Covered California enrollees receive financial assistancebased on their incomes.

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California's announcement of 2020 Obamacare rates comes at aprecarious moment for the federal health law: Oral arguments were set to start Tuesday in a landmark lawsuitfiled by a group of Republican attorneys general who want theentire health law overturned. The 5th Circuit Court of Appeals inNew Orleans heard oral arguments in the case, known as Texas v.United States. California Attorney General Xavier Becerra isleading a group of Democratic attorneys general in defending theAffordable Care Act.

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The Trump administration, through the Department of Justice, hasdeclined to defend the law. Depending on what happens at theappeals court, the health law could reach the U.S. Supreme Courtbefore the 2020 presidential election.

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The Trump administration has taken other steps to hobbleObamacare, including shortening the annual open-enrollment periodfor the federally run health insurance exchange, healthcare.gov,and drastically slashing funding for enrollment outreach efforts.Administration officials have said that a replacement plan forObamacare will be unveiled soon.

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In addition to California, some other states have reported lowrate increases or decreases for 2020. Washington state last month announced an average0.96 percent increase for next year. Maryland announced anaverage 2.9 percent rate reduction for 2020. But someexchanges may continue to see more significant increases. Earlierthis year, for example, New York proposed an 8.4 percent rate increase.

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Matthew Fiedler, a fellow with the USC-Brookings SchaefferInitiative for Health Policy, said California's “relativelysubdued” rate increase shows that insurers expect the state's newhealth insurance requirement and tax credits to help bringhealthier people into the market — and are responding with lowerpremiums for consumers.

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However, Fiedler said, “everything California is doing dependson the Affordable Care Act remaining in place.” Few if any stateswould be able to spend enough to make up for the elimination offederal tax credits that help some income-eligible people purchasehealth insurance, he said.

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Lee said the 11 health insurers participating in CoveredCalifornia would return next year, and Anthem Blue Cross, anational plan, will expand its offerings in the state. Anthem'sexpansion comes after it pulled out of some regions in 2018. Theinsurer will expand into the Central Coast, parts of the CentralValley, Los Angeles County and the Inland Empire, Lee said.

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Nearly all Californians will have a choice of at least twoinsurers, Lee said.

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California is divided into 19 pricing regions, and not all 11plans participating in the exchange next year will be offered ineach region. In some regions, the rate increase will be higher thanthe statewide average. In others, it will be lower.

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What consumers ultimately pay depends on where they live, theirincome, how much coverage they want and their choice ofinsurer.

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The health exchange is expected to release proposed rates byregion on July 17; state regulators must approve them.

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Consumers who choose bronze-level plans, which have the lowestmonthly premiums but the highest out-of-pocket costs for medicalcare, will see an average 5.7 percent increase in rates,according to Covered California. Those who choose silver plans —which come with cost-sharing subsidies for people whose incomesqualify — will see an average premium decrease of4.3 percent.

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California's new financial assistance for middle-classconsumers, combined with the average rate decrease for silverplans, may encourage some people who previously boughtless-expensive bronze plans to move up to silver plans. Silverplans provide more coverage with lower out-of-pocket costs formedical care, said Anthony Wright, executive director of theconsumer advocacy group Health Access.

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This year, nearly 31 percent of Covered Californiaenrollees chose bronze plans, which are not eligible forcost-sharing subsidies.

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“As the Trump administration seeks to blow up the AffordableCare Act, California is succeeding at making it better,” Wrightsaid.

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Open enrollment for 2020 is expected to start in October. Statelawmakers are weighing whether to extend the enrollment period to Jan.31. Open enrollment for 2019 coverage ended on Jan. 15.

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The 2017 Republican tax bill eliminated the federal tax penaltyfor not having insurance, which took effect this year. ButCalifornia lawmakers recently agreed to implement a state-levelinsurance requirement and tax penalty, joining Massachusetts, New Jersey, Vermont and the District ofColumbia.

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The new individual mandate for Californians starts in 2020. Thepenalty for not having insurance will mirror the one under theAffordable Care Act, which was $695 per adult (and $347.50 perchild under 18) or 2.5 percent of annual household income,whichever is greater. That can amount to thousands of dollars ayear.

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The revenue from the penalty, plus other state funds, will helppay for state-based tax credits for roughly 922,000 people whopurchase insurance through Covered California. As part of the2019-20 state budget signed by Gov. Gavin Newsom last month, thestate will pledge $1.45 billion over the next three years for thiseffort.

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Under the deal, California will become the first state to offerfinancial aid to middle-income enrollees who make between400 percent and 600 percent of the federalpoverty level — many of whom have been struggling to pay theirpremiums. That's between about $50,000 and $75,000 a year for anindividual and between about $103,000 and $154,500 for a family offour.

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Under the Affordable Care Act, people who purchase plans throughCovered California and other health insurance exchanges areeligible for federal tax credits only if they make between138 percent and 400 percent of the federalpoverty level. People who earn more than 400 percent ofthe federal poverty level get no federal aid.

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The majority of the state-based financial aid would go toroughly 235,000 of these middle-income people. The averagehousehold tax credit in this category would be $172 per month,according to Covered California.

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Some state financial aid will also go to 663,000 low-incomeenrollees who already qualify for federal tax credits. The averagehousehold tax credit for those who make between200 percent and 400 percent of the federalpoverty level — roughly between $25,000 and $50,000 for anindividual and $51,500 and $103,000 for a family of four — would be$15 a month, Covered California estimated.

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About 1.4 million state residents purchased health plans throughthe exchange this year, according to Covered California. InJanuary, the agency announced that new enrollment fell by nearly a quarter, with 295,980 new sign-ups,compared with 388,344 last year. Plan renewals, on the other hand,increased by about 7.5 percent.

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The decrease in new enrollment was steeper than expected for2019 — and the agency blamed it primarily on the elimination of thefederal tax penalty for not having insurance.

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An analysis by the Kaiser Family Foundation earlier this yearshowed that older adults who earn just above the income cutoff, andlive in rural areas, have an especially hard time affording theirpremiums. (Kaiser Health News, which produces CaliforniaHealthline, is an editorially independent program of thefoundation.)

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In California, older residents of far northern counties — suchas Shasta and Modoc — and the Central Coast counties of Montereyand San Benito are among those who spend the highest percentage oftheir incomes on premiums, the analysis found.

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Kaiser Health News isa nonprofit news service covering health issues. It is aneditorially independent program of the Kaiser Family Foundation,which is not affiliated with Kaiser Permanente.

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