Sticker shock

My family does not have an employer-provided health plan, and we live in a state that will set up a state-run health insurance exchange, so I wanted to learn more about the exchanges and proposed subsidies.

Several recent articles have warned of “sticker shock.” Beginning in 2014, state exchanges must offer plans that cover all “essential health benefits” as defined by the government. In other words, there will be no more “catastrophic” plans with low monthly premiums and high deductibles. (Except perhaps for young adults under 30, but information on this point remains unclear.)

To make such comprehensive plans affordable, the federal government will provide financial assistance to lower- and middle-income families in the form of subsidies, or tax credits.

A post by blogger Maggie Mahar on healthinsurance.org provides an excellent summary of how the subsidies will work.

Subsidies will be available to those making up to 400% of federal poverty level (FPL). For an individual this amounts to an annual income of $44,680, and $92,200 for a family of four.

The exchanges will offer four levels of plans: bronze, silver, gold and platinum. After the annual deductible is paid (it is also not clear yet what those deductibles will be, but reports suggest they will be high), the bronze plan pays 60% of allowed expenses, silver 70%, gold 80% and platinum 90%. The subsidies are based on premiums for the silver plan only.

The Kaiser Family Foundation Health Reform website has an interactive tool to help you calculate your subsidy.

As the table below illustrates, because the subsidy cut-off is not graduated, a family with an income of $94,000 will pay significantly more in premiums than a family with an income of $92,000.

 

Income $92,000 $94,000
Age of Policy Holder 40 40
Unsubsidized Premium $12,130 $12,130
Tax Credit $3,390 $0
Actual Premium $8,740 $12,130

 

 

 

 

 

Also, premiums rise with age. A 50-year-old policy holder making $94,000 will pay $16,858 or 18% of income; at 60 the premiums rise to $24,042 or 26% of income.

Related story from US News: “How new health insurance subsidies will work”

These figures are for premiums alone—not deductibles, co-pays or co-insurance. How can 26% of income be considered affordable for a family? Critics of Obamacare argue that the subsidies are too generous and must be cut back, but if premiums are too expensive, won’t families be forced to ignore the mandate and drop coverage?

It’s also possible that employers with fewer than 50 employees will choose to let those employees buy insurance on the exchanges rather than provide coverage. And what if some states refuse to expand Medicaid, forcing even more low-income (i.e. subsidized) families into the exchanges?

Considering our country’s debt burden, how can these subsidies be considered sustainable?

Sticker shock indeed.

Sláinte!

Frugal Nurse

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