Since the new handy-dandy health care plan is now Constitutional, and thus the law, and since it’s unlikely to be repealed (for a lot of reasons) before it becomes fully operational in 2014, maybe it’s time to get out a pencil and figure out how to surf the new rules as inexpensively as possible. I find it impossible to believe I’m the only one thinking like this.
First of all, here’s the setup in graphic form;
OK, so let’s go through this for the circumstances here at 9thousandfeet;
In this household, the answer to the first box on the flowchart is “no”, so now we’re thrown into the box that asks if we have any current insurance. The answer there is “no” also, so there is a
penalty “tax” for not having insurance.
OK, so how much of a hit is that? In 2014, if I read this right, it will be either $190 or 1% of the household income – whichever is greater. In our case here on the mountainside it would be around $350 therefore —give or take a few bucks. Now the tax increases over time, to a maximum of 2.5% of income beyond 2016, so if I’m reading this right, and our household income remains steady at its current level, the biggest tax penalty possible will be, roughly, approaching $1000. This is individual penalty, so for two people we’re looking at maybe $2000 or so. Maximum.
Now, incomes less that 133% of the official poverty level are eligible for medicaid under the new rules, but that won’t apply, since 35K or so is about 300% of that level. So that provision is inapplicable here. Here’s a graphic of how the poverty level/max cost thing is supposed to work;
Looks like the 9thousandfeet.com household is in the 9.5% maximum out-of-pocket insurance premium cost. There may be years when we’re in the 8%-9% range, especially the way things have been going lately, but that’s the ballpark.
Referencing the guesstimates from the figures at the bottom of the first chart—
Premiums for health insurance purchased through exchanges would vary by age. The CBO estimates that the national average premium in 2016 will be $4,000-4,500 for an individual and $12,000-12,500 for a family.
—it seems unlikely in the extreme that the policy premium will be less that the maximum out-of-pocket expense, I’ll assume the cost to this household will be something a little north of $4,000 annually for a policy that would avoid the tax penalty. That’s the maximum, as I understand it.
So, as of now, under the new ACA rules, the annual out-of-pocket cost to this household for a policy that avoids the tax penalty will likely be close to the maximum, probably around $4,000+. And the ultimate maximum annual penalty for non-compliance (after 2016) will be around $2,000.
Keep in mind that the “penalty” is now a tax, and so long as it is paid there can be no wider legal implications—no criminal aspect to the situation at all—and without revision of the law, no further penalty whatsoever.
Now, as of Jan 1st 2014, insurers will be prohibited from discriminating against existing medical conditions, both with regard to issuing policies and charging higher premiums for them. This is a big deal, and what it means (again, unless I’m missing something) is that, arithmetically (this is an arithmetic post, not a moral one) this household would save money by paying the tax penalty so long as we’re all healthy, then (after Jan 1, 2014) just buying a policy if/when either of us gets sick so as to defray catastrophic costs. After that 2014 deadline, such a policy would (must, under the ACA provisions) cost the same as it would if we were not sick, and could not legally be declined.
Of course there’s always the chance of an accident, a car wreck or something, that could scramble the arithmetic dramatically. And anyone who makes that gamble and loses will be in a world of hurt just like so many people already are. But they would still get treated, and those costs would be absorbed by the wider economy just the way they are now.
What about people at income levels closer to the poverty line? I haven’t done the math for a bunch of individual cases, but looking at the chart above, the maximum tax penalty (at 2.5%) is lower than the maximum Out-of-Pocket premium payments at every level until you approach 133% of the poverty level, when medicaid kicks in. Assuming you live in a state that decides to expand the medicaid program to accommodate that, which is a whole other discussion.
So the bottom line here is that unless insurance premiums drop unimaginably, and so long as you don’t get in a wreck, you’ll likely spend less money by paying the tax penalty than you will on compliance. Given that, what will many people choose to do? Especially younger, healthier people who are already accustomed to flying without an insurance net? Sure, it’s a risk, but for those in good health and without much accumulated wealth at stake in a potential bankruptcy (that’s a lot of people) saving a couple of grand a year on a just such a gamble might look pretty good. Especially since they’ll still get emergency care if they need it, even if they can’t pay for it.
This result is so bizarre on its face that I went back in a couple of times to see where I screwed up. Didn’t find anything, but I’ve been seriously distracted with phone calls and emails about the fire preparation protocols after the big meeting. No, we’re not on fire, but we are working on what to do if we catch on fire—where to assemble so you can be counted and so on. Anyway, if I’ve missed something that makes nonsense out of the thrust of this piece, let me know and I’ll slink away in embarrassment.