Stupid News for the Math Challenged

Reaching a new low in sheer stupidity, CNN is now reporting that many Americans won’t be eligible for “Obamacare subsidies” because the insurance premiums in their states are too low, as if that means they are somehow being cheated.  They provide the example of subsidies in Portland, Oregon phasing out at the $28,000 income level for people under age 35 — and complain that the Obama administration had “promised”  a higher “threshold for government assistance.”

Or to put it simply:  CNN is upset that that insurance is being sold too cheaply to trigger the need for young people to get government help to pay their bills.

As if it would somehow be better if those youngsters in Oregon could be charged so more, so that more taxpayer dollars could be sent to the insurance companies.

So, here are a few pointers for the mathematically challenged:

1.  Obamacare is not a cash giveaway.  The money transfer that is termed a “subsidy” is not a party fund for people with low incomes — it is an advance payment of a tax credit to offset the expenses of those who have to pay too much for insurance.  The insurance companies set the rates for premiums, and the full premium must be paid for each and every person.   Based on income, the government calculates a maximum that each person or household up to 400% of the Federal Poverty Line can be expected to pay for insurance that year. If the policy is below the maximum: great news.  If the policy is above the maximum, then at the subscriber’s option, the government will pay a portion of the premium directly to the insurance company each month.  Alternatively, the subscriber might choose to pay the full amount and hope to receive a tax credit the following year..

2. Obamacare is a way to make insurance affordable. It is not structured to allow anyone to profit from buying cheap insurance. If a person is lucky enough to qualify for an insurance subsidy that that is larger than the entire amount  of the cheapest Bronze plan on the exchange, that person  does not get a refund. Ergo, someone who is paying less than required under the law for insurance is not being deprived of a benefit if they don’t receive a subsidy to which they were never entitled.

3. Math is math. The subsidy system is based on a sliding scale tied to income. CNN gives the example of a 27-year-old living in Chicago with an income of $27,400 — which is 238% of the poverty line.  The very  helpful Kaiser Foundation subsidy calculator tells us that, under ACA, the maximum that a person with that income will have to pay for insurance 7.65% of their income ($174.67 a month).   The subsidies are calculated based on the 2nd lowest cost Silver plan.   Apparently if you are age 27 and live in Chicago, the premium for that plan is $2,083 per year ($173.58), which is 7.6% of annual income.

$174 is less than $175. (Complicated math here: I rounded the figures up).   7.6% is less than 7.65%.

Ergo, the person does not need a subsidy because the insurance costs less than the amount that would trigger a subsidy.

CNN says that “if the baseline plan is cheap enough, the formula is thrown off and the subsidy is zero.”

NO. This is not rocket science, it’s subtraction.  The formula is not “thrown off”.

If the young person lived in Brooklyn with the same income, the person would still pay up to the same maximum — 7.65%. But in Brooklyn the annual insurance premium would be $4,624 ($385.33) a month, or 16.9% of the person’s income.   But the Brooklynite does not have to pay $385 a month for insurance, because the Brooklynite can get a subsidy of up to $2,529 per year ($210.75/month).  This would reduce the monthly premium to $174.58.

CNN thinks that this means that the Brooklynite is in good shape, getting all that precious Obamacare money, while the poor Chicagoan is left out in the cold.

But the calculator in my brain says that the Brooklynite is paying $1 more per month than the Chicago counterpart.  That’s not a whole lot more, but it is more.

This is not a glitch in Obamacare: it is how the program is supposed to work.  If you are lucky or young enough that you can get affordable insurance, then you won’t be receiving a taxpayer-funded gift from Uncle Sam.  (The government gets to say what is “affordable” and you might not agree – but that’s pretty much how the tax system  has always worked. )

CNN seems to think that this is unfair to young people:

But no matter where a person lives, premiums increase based on a customer’s age, meaning this problem will disproportionately affect younger customers. Two exceptions are in New York and Vermont, where state laws require insurance companies to charge younger customers the same as older customers.

No, this is not a “problem”. This is math. If the insurance buyer in Chicago was 32 years old instead of 27, but had the same income,  the annual health insurance premium for the benchmark plan would be $2,351 instead of $2,083, and the 32 year old could get an advance tax credit of up to $256 per year — meaning an annual payment of no more than $2,095.  He could dance around and sing, “hoorah, hoorah, I’m getting a subsidy” – but $2,095 would still be more than $2,083.

The reason that Brooklyn 20-something has to pay so much for insurance is that New York eliminated the age-based premium thing, which CNN seems to think is great news for 27 year olds living in New York.

But it isn’t. Because no one ever will have to pay more money for an insurance premium than the amount the company charges, but some people will end up paying more for insurance because they make more money. If the 27-year old in Chicago gets a promotion and a raise, and maked $29,000 instead, he won’t owe any more to the insurance company and he won’t owe more in taxes. The Brooklynite?  Her insurance bill just went up to $2,269 per year (8.1% of her income, or $189 per month).

CNN is quite distraught to find out that a 25-year-old in Nashville earning $25,500 will not get a subsidy.  Because that person can actually buy a Silver plan for  $148, and a subsidy wouldn’t kick in unless the insurance premium is more than $150.

4. I would point out that even in the cheapest-insurance state, all of these young people qualify for reduced cost-sharing — meaning they can buy Silver plans with lower deductibles, lower copays, and lower out-of-pocket maximums than higher earners.  So even if they don’t have the government mailing their insurance company a partial premium check every month, they do get a benefit – and a real, substantial, pocket book benefit because they pay less money out-of-pocket for a doctor’s visit or to buy a prescription drug.

5. Even more distressing than the stupidity of the CNN story — the comments at the bottom of the article.   Apparently there are a lot of people in this country who think its bad news that young people can buy very low cost insurance in many parts of the country.

I think that a 6 year old in a candy store can understand that if he has 75 cents, he can buy a candy car that costs 50 cents but would need a grownup to help to buy a candy bar that costs $1.  If the exact same candy bar is being sold for two different prices, then I’ll bet most 6 year olds would choose to buy the 50 cent bar and keep one of their quarters, rather than have to ask their dad to give them another 25 cents to buy the more expensive, but identical, candy bar.

It’s the same with insurance.  Lower premiums are better for everyone. And whether a subsidy is -0- or $1000 or $5000, that government payment benefits the insurance companies, not the consumer. It is a form of partial compensation for a  monetary obligation that the consumer has taken on– not a cash prize.

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One thought on “Stupid News for the Math Challenged

  1. And speaking of stupidity, how about the penetrating analysis that compares numbers of signups on the exchanges with numbers of people whose insurance was cancelled. As if nobody who gets a notice that their insurance policy was cancelled and they are being moved to this other insurance policy doesn’t just say, Oh, OK, and pay the bill. And as if nobody whose policy was cancelled doesn’t call up the insurance company or go online or talk to an insurance agent, and buy a new policy, avoiding the exchanges entirely.

    If you need to buy a new policy, and you’re nowhere near subsidy level, you probably are better off just buying direct from the insurance company and avoiding the exchanges. And that is undoubtedly what a lot of people will do.

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