Sep
25
2013

The Cold Equations of #Obamacare: $1,260 > $95.

Why are these two numbers relevant?

  • $1,260 is the minimum – the minimum – “insurance premiums for the lowest-cost ‘bronze’ plan for a 27-year-old single person… in 36 states where the federal government will oversee exchanges” (to quote the Wall Street Journal). Note: this does not reflect subsidies.
  • $95 is the minimum annual 2014 tax that will be levied on people who do not purchase an Obamacare policy.

Any questions? …Oh, there are?  Cool.

  1. “That’s just the minimum!” Yes.  The rule of thumb is, $100 per year tax at $20K a year gross salary and it increases by $100 for every $10K of salary. Single people need to be making a lot of money – as in, six figures – before it becomes cheaper to pay for the insurance.
  2. “But there will be subsidies!”  Yup!  The numbers here assume a different average insurance premium (a higher one than the numbers in the WSJ), so they’re not really valid for comparison.  However: looking at Kaiser’s calculator it notes that anybody over the federal poverty level (about $11,490) is eligible for the subsidy.  A rather… paltry… subsidy.

OK, let’s break that down. According to PBS, the subsidy goes as follows:

The law requires consumers to contribute a specific percentage of income to the premium. It’s a sliding scale based on the federal poverty level. For example, if your household income is at 150 percent of the FPL, you are required to contribute 4 percent of income toward the premium. If your income is at 300 percent of poverty, then you’re required to contribute 9.5 percent. The subsidy then makes up the difference between that amount and the cost of the benchmark plan.

So let’s say that  Bob makes $17,200 a year (this is, by the way, a couple of grand more than somebody making minimum wage).  Bob is a single male who is 27, so his Obamacare tax is $95 (the minimum).  Bob lives in Oklahoma (which has the cheapest premiums, as per that WSJ article). The WSJ estimates that he will be paying $1,260 a year for that policy.  Now Bob is making less than 150% of the federal poverty level, so Bob only has to pay 4% of his income towards his insurance premium.  4% of $17,200 is $688. Which means that Bob will either have to pay $577 a year towards his health care, or pay the $95 Obamacare tax.  Bob, by the way, feels fine.  Bob also knows that he can now get on healthcare whenever he needs to.  But what if Bob makes $34K a year?  Still lives in Oklahoma, below 300% of the poverty level… so Bob has to pay 9.5% of his income towards his premium. 9.5% of 34K is $3,230… which is, of course, considerably more than the $1,260 that he’d be paying for that policy.  So Bob can either pay the full $1,260… or he can pay the $100 Obamacare tax.  Again: Bob feels fine.

It has long been my opinion that “And then a miracle happens…” should not be a part of any policy strategy.  Apparently, the Obama administration disagrees with me.

16 Comments

  • acat says:

    May I suggest, Moe, substituting “Then all the insurance companies go out of business and we get single-payer” for “And then a miracle happens…” ?
    .
    This does not look like an unforseen, let alone an unintended consequence, eh?
    .
    Mew

  • johnv2 says:

    Bob also knows that he can now get on healthcare whenever he needs to.

    I haven’t actually read anywhere that ACA policies are available outside of the open enrollment period. Certain ‘life-events’ also trigger a special enrollment period, but I’m not sure what that might be. Does anyone know?

    • acat says:

      Pre-existing conditions are no longer a barrier to getting insurance.
      .
      Bob knows he can call Aetna or Prudential and get a policy, right from the E.R. waiting room.
      .
      Mew

      • johnv2 says:

        I’m not sure that you can call and get a policy unless it is during an open enrollment period. There are some events that trigger a special enrollment period (lose a job, have a child, and so forth) but until people figure out how to game the system and create a special enrollment trigger at will, I wouldn’t count on signing up from the ER.

        • acat says:

          Umm, what are you talking about?
          .
          No offense intended, but .. “open enrollment” applies to Employer-provided policies, and evidently the Exchanges.
          .
          Meanwhile, insurers currently sell policies 7x24x365 via these people called “agents”.
          .
          What I’m saying is, don’t “enroll” in “Obamacare”, *buy a policy* – get treated, get well, then *drop* the policy.
          .
          Mew

          • lineholder says:

            johnv2 is right on that one, acat. Guaranteed coverage, but limited enrollment periods during the year.

          • jbird says:

            I’ve bought health insurance privately before. They don’t care when you buy it as long as your money is green. I even used a website that listed my options and prices from different providers. Open enrollment, in my experience, has always been an employer thing.

          • johnv2 says:

            Meanwhile, insurers currently sell policies 7x24x365 via these people called “agents”.

            Look, I don’t really know how all this will play out. But. Aren’t the “agents” selling policies from companies that have a large financial incentive to avoid selling policies to, erm, poor risks? I’m not saying they would violate the law or anything, but “can’t be turned down for pre-existing conditions” is not quite the same as “can’t be turned down.” If individuals can game the system, surely organizations with large number of lawyers on board will find a loophole or three?

            But again, I don’t know.

  • lineholder says:

    Moe, my understanding is that Bronze level plans don’t qualify for subsidies.
    http://healthinsurance.about.com/od/healthinsurancetermsb/g/Bronze-Plan-what-Is-It.htm

    If Bob’s plan is Bronze level, that changes the math completely, doesn’t it?

    • lineholder says:

      Check that. This may apply only to the cost-sharing subsidies, which is separate from the subsidies to cover premiums.

  • jbird says:

    At some price point, Medical insurance is worth it, even for a 27 year old male. The 1st example that was $688, I could see people signing up for that, it’s only $57 a month. At the $3,230 level though? That’s pretty high for a healthy individual. The 9.5% is based on pre-tax income. Take home pay is a lot less. Having to pay $125 out of my $1,000 bi-weekly net, that’s a pretty penny. I’m paying not much more than that for my employer subsidized family plan.

    • Moe_Lane says:

      I would actually counsel people to get medical insurance, just in case. But a 27 year old who doesn’t have it already is going to look at the numbers, note that they can pay 1/7th of the insurance as a fine that they’ll never even see (because the IRS will simply take it out of their refund), and plan accordingly. And sixty bucks a month is much larger when you’re making just above minimum wage.

  • bobby b says:

    See, now, I’m hearing different and varying things about this long-expected change in how insurers have to deal with preexisting conditions.

    Are we sure that this is in the bill, and that it says what we think it says?

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