Falling off the cliff…..

The really cool part about Obamacare, especially for we older folks, are the subsidies. 

The really terrible part about Obamacare, especially for we older folks, is what happens if our incomes too high to qualify for subsidies, but just barely.

Here’s why:

The part that makes the care “affordable” is that everyone who earns income between 100% to 400% of the federal poverty  line gets a tax credit for any amount that we pay that is above a certain percentage of our income. That percentage varies, but is no more than 9.5%.  Because we need to pay our insurance premiums right away, the law has another perk: we can choose to claim that tax credit in advance, and the government will pay it out in monthly installments directly to the insurance company. 

That’s one reason why the exchanges are so important, by the way. It would be super difficult for the federal government to be monitoring all the payouts if they had to rely on the individual insurance companies to track everyone’s finances and they had to be mailing out checks to all the various insurance companies selling policies across the U.S.  So the exchanges are a way of coordinating all of that — the exchange takes on the responsibility of screening and verifying income, and I am thinking that that the government is billed in a lump sum, and maybe all the money transfers can be handled efficiently through computer links and automatic transfers. So no little checks to get lost in the mail or misfiled.

I am thinking that when you look at the “average” person or family, that 400% of the poverty line looks pretty reasonable. For one things, that’s a big chunk of the US population — it results in a number that exceeds the median household income in many parts of the country, and probably will make a large proportion  of the population eligible for those advance tax credits.  Nationwide, that covers up 67% of the people.  See http://kff.org/other/state-indicator/population-up-to-400-fpl/

Here’s a chart that shows what these numbers actually mean in 48 states (they are higher in Alaska and Hawaii):

Now for a family of four, two parents, two kids, that’s looking pretty good.  An annual household income of $94,000 is not too shabby, and the family supported by a sole breadwinner earning $47,000 is going to qualify for a very generous tax credit.

But what about his single co-worker who earns the same? For that person, $47,000 is just about $1000 over the 400% mark, leaving the individual to pay full cost of any health insurance premiums.

In that case, it kind of depends on the person’s age.

Let’s look at what happens to the $47K earner in my favorite city, San Francisco.  If that person’s income was $45,950 — just under the 400% mark — the maximum he or she would pay in premiums would be 9.5% of the annual income,  which would be $4,460 a year, or a monthly premium of about $371.

The advance tax credit is keyed to the second lowest cost Silver plan for an area, which in San Francisco (Region 4)  is offered by Anthem Blue Cross.

Using the Shop and Compare Tool at Covered California, I can see following full-cost premiums:

Age 30:    $334

Age 40:    $377

Age 50:    $526

Age 60:    $800

Obviously, the 30 year old is doing just fine — he wouldn’t be eligible for a subsidy even if his income were less, because the premium is lower than the minimum amount he is expected to pay — 8.5% of his income to be exact.

The 40 year old is also exactly where she should be.  No premium assistance — but $377 is only 9.6% of her income, so she’s not hurting by virtue her earning more than the upper threshold.

But you can see that somewhere along the way between 40 and 50 things start getting edgy. $526 is a lot to pay for a single person premium —  13.4% of the income — and the numbers are scary steep for the 60 year old, who expected to pay 20.4% of income.   And of course it keeps getting worse, up until the time that the older person reaches age 65 and qualifies for Medicare.

I have a feeling that the subsidy provisions of the law were written with “average” numbers in mind. The framers were probably looking at typical premiums for 40-year-olds, not 60-year-olds — and they probably had premium numbers in mind that were closer to what the market is in the middle parts of the country, rather than the more expensive east and west coast urban and suburban markets.  That is, I think I would come up with much more encouraging numbers if I were looking at rates in Oklahoma instead of San Francisco.

But I don’t live there. I’m here on the west coast, and I’m also pushing 60. So those 60-year-old rates matter to me, a LOT.

Those of us in the 55-64 age bracket can face a lot of difficulties. We may be lucky enough to have incomes that keep us above that 400% mark — and believe me, when I realize that puts me in the upper third of all people in my state, I am grateful. But I’m also pretty near the end point of my earning capacity. I’m really too tired these days to work all that much harder, and a career change at this age doesn’t seem feasible.  So there probably are a lot of us who are none too happy about that premium (except for those whose health histories meant that they were already paying much higher premiums — in which case even $800 may look very good).

I’m not writing this blog to gripe. I am grateful that I have an income that comfortably pays my bills and I am delighted that I am in such good health that I have been paying a lot less for insurance over the years.

But this is a problem, and one that I plan to explore in this blog. I think it would be better if there was some sort of gradual phase-out of the tax credit, not an abrupt cut-off.   I don’t think that there’s likely to be any legislative change in the short-term, but because I live within the segment of insurance buyers who caught in the middle between loss of subsidy eligibility and premiums that will continue to climb with age..


5 thoughts on “Falling off the cliff…..

  1. Pingback: Who’s Left Out? (Part One) | An Ad Hoc Guide to the Affordable Care Act

  2. Pingback: Why the Bronze plan may be better than you think | An Ad Hoc Guide to the Affordable Care Act

  3. So, as you point out, for a older person in the California Bay Area who is just on the threshold of 400% of the poverty level, getting a raise or earning a little more money will actually cost money, because she’ll lose her subsidy. I checked the site, and for me, if I earned exactly 400% of the FPL I’d be eligible for a $3600/year subsidy, but if I earned 400% plus one dollar, I’d get no subsidy. This is bad. I should not have an incentive to refuse a raise, or to lie on my taxes.

    Have you got a feel for how many people this affects? We Californians live in a high-cost state. How many other regions, and how many age groups have this same problem? I know that some lower-cost regions do not.

    • Sorry, I don’t know how many people are on the cusp of that 400% mark, and I think it would be hard figure to nail down. It’s not so simple as figuring out an individual’s pay check. To start with, the financial impact of a change in earnings depending on the earner’s age and marital status. Further, the premium eligibility is based on more (or less) than earned income. Eligibility will be based on income from all sources, but also be subject to a variety of deductions. I’ll be focusing on calculation of household income and MAGI (modified gross income) in later blog posts.

      You are right that there should not be an incentive to lie on taxes, but many taxpayers may be able to avoid a problem by taking advantage of legal tax strategies to maximize deductions from income. Stay tuned.

  4. Pingback: Do you want that raise or not? A formula for 400 percenters | An Ad Hoc Guide to the Affordable Care Act

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